Why Preserving Business Cash Flow Matters
Cash gives businesses flexibility.
Even a profitable company can face challenges when too much capital is tied up in equipment or other long-term assets. Businesses still need readily available funds to cover operating expenses and respond to opportunities or unexpected costs.
Available working capital may be needed for:
- Payroll and employee expenses
- Inventory and supplies
- Marketing and customer acquisition
- Rent and facility expenses
- Repairs and maintenance
- Seasonal fluctuations
- Expansion opportunities
- Unexpected business expenses
Paying cash for a major equipment purchase can reduce that financial cushion immediately. Equipment financing provides another approach: acquire the equipment now while paying for it over an agreed-upon period.
How Equipment Financing Can Preserve Working Capital
Consider a business purchasing $100,000 of equipment.
Pay Cash
$100,000 leaves the business upfront.
The company owns the equipment, but that capital is no longer available for other operating or growth needs.
Finance the Equipment
Spread the equipment cost across scheduled payments.
The business can put the equipment to work while retaining more available cash for operations and growth.
Ideally, revenue or efficiencies generated by the equipment can help support the cost of acquiring it over time. This is one reason businesses may evaluate financing even when they have enough cash available to purchase equipment outright.
5 Ways Equipment Financing Can Support Business Cash Flow
Reduce Large Upfront Expenses
One of the primary benefits of equipment financing is reducing the amount of capital that must leave the business at one time.
Instead of making a substantial lump-sum purchase, businesses can spread equipment costs over time. This can make large purchases more manageable while preserving liquidity.
For growing businesses in particular, retaining cash may provide greater flexibility than putting a significant portion of available capital into one asset.
Keep Working Capital Available for Operations
Equipment is not the only expense required to operate a successful business.
A restaurant purchasing new kitchen equipment may still need cash for food inventory, payroll, rent, advertising, and utilities. A contractor purchasing heavy equipment may need working capital for materials, fuel, labor, and upcoming projects.
Financing the equipment separately can allow businesses to preserve working capital for these day-to-day needs.
Protect Existing Lines of Credit
A business line of credit can be valuable for short-term and unexpected expenses.
Using a large portion of that credit capacity to purchase long-term equipment may leave less available when the business needs it for inventory, receivables, seasonal expenses, or an unexpected opportunity.
Equipment financing may allow a business to finance a long-term asset separately while preserving its revolving credit capacity for other needs.
Make Equipment Costs More Predictable
Predictability can make cash-flow planning easier.
Rather than absorbing the entire cost of equipment in a single period, financing can turn a major capital expenditure into scheduled payments.
Businesses can then incorporate those payments into operating budgets and financial forecasts. Depending on the financing structure, payment options may also be designed around the equipment, business profile, and anticipated use of the asset.
Put Revenue-Producing Equipment to Work Sooner
Waiting until enough cash accumulates to purchase equipment can sometimes delay growth.
Financing can allow a business to acquire necessary equipment sooner and begin using it to support operations.
New equipment may help a business:
- Increase production capacity
- Complete jobs more efficiently
- Serve additional customers
- Replace unreliable or outdated equipment
- Reduce downtime
- Expand into a new service or market
When equipment contributes directly to revenue or operational efficiency, businesses can evaluate the financing payment alongside the value the equipment is expected to generate.
Need Equipment Without Tying Up Your Cash?
Explore equipment financing options designed to help your business acquire the equipment it needs while preserving working capital.
Equipment Financing vs. Paying Cash
Paying cash is not necessarily the wrong decision. For some businesses and equipment purchases, it may make perfect sense. The important consideration is what that cash could otherwise do for the business.
Before paying cash for equipment, consider asking:
- How much liquidity will remain after the purchase?
- Could this cash produce greater value elsewhere in the business?
- Will we need additional capital for payroll, inventory, expansion, or seasonal expenses?
- Would preserving our line of credit give us greater flexibility?
- How quickly will this equipment begin contributing to revenue or efficiency?
A business with substantial cash reserves and limited upcoming capital needs may choose to purchase equipment outright. A growing company with multiple demands on its working capital may find financing more strategically useful.
The decision should support the company’s broader financial goals, not simply minimize the number of monthly payments. If you are also deciding between financing and leasing, see our guide to equipment leasing vs. equipment financing.
What Types of Business Equipment Can Be Financed?
Equipment financing can be used across a wide range of industries. Depending on the equipment and financing program, businesses may finance:
- Construction and heavy equipment
- Manufacturing machinery
- Restaurant and commercial kitchen equipment
- Medical and healthcare equipment
- Transportation equipment and commercial vehicles
- Automotive repair equipment
- Material handling equipment
- Printing and packaging equipment
- Technology and office equipment
- Fitness equipment
- Agricultural equipment
- Specialized industry machinery
Financing may also be available for new or used equipment, depending on the transaction and financing requirements.
Can Equipment Financing Include More Than the Equipment?
In some transactions, financing may extend beyond the base purchase price of the equipment.
Eligible project costs may include expenses associated with putting the equipment into operation, such as shipping, installation, labor, warranties, or other related soft costs.
Including eligible costs in the financing can further reduce the amount of cash a business needs to spend upfront. The costs that can be included depend on the financing structure and transaction, so businesses should discuss the complete project, not just the equipment purchase price, when exploring financing options.
Equipment Financing and Section 179
Equipment purchases may also offer potential tax benefits.
Under Section 179 of the Internal Revenue Code, businesses may be able to deduct the cost of qualifying equipment placed into service during the applicable tax year, subject to current IRS rules, eligibility requirements, and limitations.
Financing qualifying equipment does not necessarily prevent a business from taking an eligible Section 179 deduction. Because tax rules and individual circumstances vary, businesses should consult a qualified tax professional to determine whether equipment qualifies and how a financing transaction may affect their tax position.
For a business-focused overview, visit Centra Funding’s Section 179 equipment financing guide.
When Does Financing Equipment Make Sense?
Equipment financing may be worth considering when a business:
- Needs equipment but wants to preserve cash reserves
- Is expanding or adding capacity
- Wants to keep its line of credit available
- Needs to replace aging or unreliable equipment
- Wants predictable equipment payments
- Has other opportunities for its available working capital
- Needs equipment to begin generating revenue sooner
- Is purchasing equipment with a long useful life
The right financing structure depends on the equipment, cost, business history, credit profile, cash flow, and long-term objectives.
Estimate Your Equipment Financing Payment
Before applying, it can be helpful to understand how the amount financed and repayment term may affect your estimated payment. Use Centra Funding’s equipment financing calculator to explore estimated monthly payments for different financing amounts and terms.
Frequently Asked Questions About Equipment Financing and Cash Flow
How can equipment financing help preserve cash flow?
Equipment financing can spread the cost of equipment over scheduled payments instead of requiring the full purchase price upfront. This can leave more cash available for operating expenses, inventory, payroll, growth, and unexpected needs.
Is it better to finance equipment or pay cash?
It depends on the business’s cash reserves, upcoming expenses, financing costs, and plans for the equipment. Paying cash avoids financing costs, while financing can help preserve liquidity and keep capital available for other business priorities.
Can equipment financing include installation and other costs?
Depending on the transaction and financing program, certain related costs such as shipping, installation, labor, or warranties may be eligible for financing along with the equipment.
Can financed equipment qualify for Section 179?
Financing equipment does not automatically prevent it from qualifying for Section 179. Eligibility depends on the property, how it is used, when it is placed in service, and current tax rules. Businesses should consult a qualified tax professional about their specific situation.
How can I estimate an equipment financing payment?
You can use Centra Funding’s equipment financing calculator to estimate payments based on the amount financed and selected term.
Preserve Cash While Investing in Your Business
Purchasing equipment and maintaining healthy cash flow do not have to be competing priorities.
Business equipment financing can provide a way to acquire the assets your company needs while keeping more capital available for the expenses and opportunities that keep the business moving forward.
Centra Funding provides equipment financing solutions for businesses across a wide range of industries and equipment types. Financing options are available for transactions from $5,000 to $10 million, subject to approval and program requirements.
Ready to explore your equipment financing options?
